Efficient supply chain management can make or break a business. This means it’s important to find a reliable partner you can trust to help you build and run an effective supply chain. Outsourcing fulfillment can help improve the productivity and bottom line of a company, which gives you a better hedge against inevitable disruptions, costs, and time crunches. This blog will explore seven of the top reasons for outsourcing your supply chain management to help you gain a better understanding of its positive effects on a company’s growth.
Why Should You Consider Outsourcing Your Supply Chain Management?
Your supply chain is vital to your company’s success. A poorly-managed supply chain can result in missed opportunities, like missed or late deliveries, picking and packing issues, or even inventory mishaps like overstocking or stock-outs. A business that isn’t paying close attention to its inventory, technology, data analysis, and operational efficiency is likely losing a lot in recurring revenue.
Since supply chains are essential to the longevity and success of all businesses, optimization can aid in faster production cycles and reduced costs. By outsourcing the logistics and fulfillment process – from supply planning, product planning, demand planning, sales and operations planning, and supply management – a business can better prepare for seasonal trends and unforeseen supply chain issues. All of this frees an organization to focus on what it does best — growing your business.
Which Supply Chain Processes Can You Outsource?
A tech-enabled third-party logistics company (3PL) can help streamline the entire supply chain and manage the entire logistics process on your behalf.
Here is a list of supply chain processes that can be outsourced to a qualified 3PL:
- Order fulfillment
- Warehouse receiving
- Product storage and shipping
- Order management
- Inventory management
- Automated shipping
- Returns management
Now that we have a better understanding of why outsourcing fulfillment can help a business and which processes you can outsource, let’s look at seven of the top reasons for outsourcing your supply chain management.
1. Strategic Positioning
A major reason many companies outsource their supply chain management is to position the company more strategically. Outsourcing supply chain services allows you to focus on activities that are core to your business. When you stop worrying about storeroom operations or order management, you can focus on sales and marketing, product development, and other areas that improve your competitive advantage.
In addition to the peace of mind outsourcing fulfillment offers a company, partnering with a 3PL that has multiple locations across the United States better positions a brand to reach a broader demographic. It also helps increase shipping time, something high on the list of demands as customer expectations continue to evolve.
2. Increased Value
Outsourcing supply chain functions increases value to your customers by allowing your company to become more efficient and nimble in areas like order picking and packing. This allows you to deliver products and services faster and with more accuracy, which cuts down on returns and lost sales from frustrated customers. Streamlined operations allow a business to better meet customer demand, and happy customers are loyal customers.
3. Reduced Operational Cost
Outsourcing supply chain management provides you with greater flexibility in controlling your costs. You can choose a contract that matches the current level of services required by your business. As your business scales up or down, you can adjust the scope of work covered by the contract so you pay only for what you need.
Also, when issues arise in the supply chain process, an outside provider has a vested interest in resolving them as quickly as possible so they don’t impact their profit margin.
4. Improved Ability to Meet Customer Demand
A 3PL with the right systems in place can better help you manage inventory levels, predict demand through sales trends, and respond quickly to customer needs.
Having such functions outsourced to a logistics company reduces the chances of an inefficient supply chain, which can seriously damage customer relations and profitability. The human resources, technology, and effective processes that 3PL suppliers can offer better ensure all supply chain processes go smoothly and efficiently.
5. Flexibility
A 3PL offers a high degree of flexibility, as they aren’t limited by fixed assets like warehouses or transportation equipment. Normally, this would require a large capital investment for a business to purchase or lease themselves and would come with a fixed cost regardless of utilization level or fluctuating inventory levels.
6. Increased Working Resources
A 3PL logistics provider allows a company to increase its resources without having to hire additional staff or purchase more equipment at high costs. In fact, some may even specialize in areas where your business lacks expertise, such as warehousing software systems or IT infrastructure management systems.
7. Peace of Mind
Peace of mind is one of the top reasons for outsourcing supply chain management. Knowing you’re partnering with a fulfillment company that’s an expert in supply chain management can help you worry about one less thing. And in a day and age where mental energy can feel scarce, having the clarity and motivation to tackle the day-to-day needs of a business is important and even vital.
What Are the Advantages of Outsourcing Logistics?
According to a study by Deloitte, 79% of companies with highly efficient supply chains generate revenue that is higher than average. The supply chain efficiency of these businesses enables them to achieve 3x faster cash-to-cash cycles and 15% lower costs while keeping only half as much inventory as their counterparts with sub-optimal supply chains.
A company with an inefficient supply chain will usually find itself inundated with supply chain issues. The problem arises from several factors, including an unprecedented rise in inventory, an increase in orders from customers, evolving consumer demands, last-mile delivery issues, and inefficient replenishment. As a result, such businesses find it difficult to concentrate on core functions, grow their customer base and market share, or increase revenues.
By outsourcing supply chain management to professionals, companies gain several important advantages and are better able to position themselves for growth. With reliable 3PL logistics providers, a business can instead focus on:
- Building better products/services
- Developing new ideas
- Marketing your business
- Strengthening customer relationships
- Implementing future growth strategies
Are There Any Cons to Outsourcing Distribution?
There are plenty of advantages to outsourcing logistics and partnering with a qualified 3PL. But even with the data and real-world experience of companies backing this up, some trepidation on behalf of a business is understandable. This begs the question: are there any cons to outsourcing distribution?
The answer is yes. But only if you partner with a logistics company that is either unqualified, disingenuous, or both. To help you gain an even better idea of what to look for in a 3PL partner, let’s take a look at some of the cons of partnering with a substandard fulfillment company.
Quality Could Suffer
The 3PL you partner with should have extensive knowledge and expertise in your products or services. If not, the quality of your offerings, inventory management, shipping times, and accuracy could suffer.
Cutting corners on logistics will ultimately prove detrimental to your company, and will significantly reduce sales, brand equity, and customer satisfaction.
Less Control Over Distribution
While outsourcing warehousing and distribution may save money, it also means giving up some control over how your goods are handled during shipment and storage. This can be particularly problematic if you have specialized shipping needs or run a business that requires tight control over inventory levels due to the perishable nature of the product. If you’re a business operating in this space, be sure to partner with a 3PL that has certifications in critical business functions, such as PCI certification, DEA, and FDA registrations.
Integration Challenges
If you’re an E-commerce company and your 3PL doesn’t have the proper technology and expertise to fully integrate with your industry and your brand, logistics could turn into a nightmare. To avoid this, be sure the fulfillment agent you partner with is adept at making the customer experience seamless and simple.
Unexpected Costs
Taxes, shipping costs, and hidden fees have the potential to get out of control. Be careful of 3PLs that have hidden costs, as you could get slapped with labeling, picking and packing, and boxing fees you weren’t aware of. In addition to service expertise, transparency is one of the most important traits to look for when partnering with a 3PL.
Understanding the ins and outs of the supply chain process can be complicated. At Jay Group, we leverage our expertise in logistics and fulfillment to help you efficiently and effectively scale your business. Contact us today to see how we may be able to help you.
